1. Field of the Invention
The present invention relates to a system and method for analyzing and scoring a consumer's credit worthiness and using the credit worthiness to approve or reject a business transaction. More particularly, to a system and method to use debit data in generating a credit worthiness report.
2. Description of Background Art
The practice of predicting a consumer's credit worthiness is well known. Conventional credit worthiness, or credit risk, analysis focuses on a consumer's credit history to determine whether a new line of credit should be offered or granted to the consumer. Typically, a consumer's credit history falls within three general categories: (1) trade-line, (2) public record, and (3) inquiry history. The first of these histories, trade-line, is a history of a consumer's actual use of credit, ranging from the amount and nature of credit lines in their name, to any potential defaults in payment. The public record history records data such as judgments against the consumer that may affect their credit, information related to liens, foreclosures, judgments, and bankruptcies. The third general category of credit history is the inquiry history. Inquiry history tracks the timing and amount of requests for credit by a consumer. This data may reflect on a consumer's sense of financial responsibility towards credit debt and ability to manage debt, as well as be an indicator of potential fraudulent activity.
Conventional credit risk analysis utilizes a risk model, or a scorecard to give a relative weight to each instance in the credit history to provide a credit-worthiness score. These models vary from provider to provider depending on the needs of the institution requesting the credit score. The methodology behind creating a risk model is well known in the art.
Institutions that request a consumer's credit-worthiness score do so for several reasons. First, institutions often pre-screen potential applicants to determine to whom they should mail a firm offer of credit, and at what terms. Typically, the institution will provide a score cut-off or tiered system for providing various terms and rates to different credit-worthiness score brackets. Pre-screening is used primarily to generate new business for the institution. Second, businesses use of the credit-worthiness score in granting real-time requests by a consumer for a line of credit. This may include applying for a home mortgage, buying a car, or opening a new credit card account at the point of sale. In these instances, the credit score is requested and compared against the institution's credit risk policy to determine whether the new line of credit will be provided.
As noted above, conventional credit risk scoring relies solely on credit history data to make its determination. The credit industry is always looking for additional predictors of credit risk. Additionally, there are many emerging consumers who are unable to secure a line of credit, notwithstanding their potential to be responsible credit holders. This class of consumers often are just starting out financially, and may include students, newly wed couples, recent immigrants or other consumers who never established credit in their own names before. There are generally two types of emerging consumers who are rejected for reasons not related to actual bad credit. The first type is typically known as the “no-hit” consumer. A “no-hit” consumer does not have any credit history whatsoever. These consumers are often rejected since no meaningful score can be generated for them purely based on a lack of information. The second type of rejected consumer is the “thin file” consumer. In this case, the consumer has some credit history in at least one of the three general categories, but there is not enough data to generate a sufficiently valid credit score. A specific type of “thin file” consumer is the “zero-trade” consumer. In this case the consumer has a public record and inquiry history, but has not yet secured a credit line and has no trade-line history. Many institutions do not accept a credit score that is not based in part on the trade-line history. Emerging consumers may represent two to thirty percent of any given industry market, and thus if accurately analyzed may provide a significant increase in a creditor's business.
Therefore there is a need for a system which (1) identifies an alternate reliable source of data for assessing credit risk, (2) outputs to a credit-provider a credit-worthiness score and report based solely on the alternate data when the consumer falls into the no-hit or thin-file categories, and (3) outputs to a credit-provider a credit-worthiness score and report based on a combination of the credit history and alternate data when the consumer is a zero-trade consumer, or when specifically requested by the credit-provider.